In 2020, during the midst of the pandemic, golf made a comeback. More than 24.8 million people discovered outdoor refuge on the links, last year and the popularity of the sport continues to grow.

 

Golf, as many have discovered, is an outdoor activity that has proven to be an almost perfect answer to the limitations of the pandemic. Players can get outside, exercise, and at the same time, socially distance themselves from one another. Last year the U.S. saw the largest increase in golfers (2 percent) in 17 years. This year, the number of rounds played was up 16.1 percent, compared to the same period in 2020, according to the National Golf Foundation. And with this increase has come an upsurge in both golf equipment and apparel.

 

Golf equipment sales in the U.S. have grown by double digits (37 percent) so far this year, as have food service shipments to country clubs (plus-32 percent) and golf courses (plus-51 percent) compared to last year. Typically, for those who do not play golf, the reward for playing a good round of golf is usually the food and beverage consumed afterwards. The top items this summer included bottled water and energy/sports drinks, juice, chicken wings, hot dogs and French fries.

 

There are roughly 15,000 golf courses in the U.S. that account for the almost 25 million outdoor golfers. However, there are another 21 million people who are enjoying the sport through different entertainment venues like Drive Shack, Big Shots Golf, and Top Golf.

 

TopGolf, which started in China and now has 70 locations in six countries, offers an alternative to driving ranges. It is a high-tech golf game that appeals to players whatever their skill level.  It is only one of a growing list of interactive golf experiences and virtual simulators that go beyond the traditional 18-hole golf course. Throw in a more social and gamified atmosphere, plus food and drinks, and the appeal to neophyte golfers is understandable.

 

The sport is also attracting more women as well as younger players, and even families. The number of female golfers jumped by 8 percent in 2020, which was the largest gain in more than five years and 44 percent of those who played at least one round of golf last year was under the age of 40. That is not to say that the older, passionate golfer is on the down swing. They are still in the game and their average number of rounds played continues to increase.  An all-time high of rounds played (20.2) was hit last year, according to NGF, and that number will probably be surpassed this year.

 

It appears that the same wave of golfing popularity is surging worldwide as well. In the U.K, golf staycations are skyrocketing, while China's growth rate in new players is above 7 percent. Both Japan and Canada, which are top golfing countries, are also seeing robust growth.

 

Golf equipment companies such as Callaway, Titleist, and Dick's Sporting Goods are all forecasting increased strength in the future. The only caveat is the difficulty in obtaining product due to supply chain disruptions. Some managers are already seeing a slowdown in deliveries for certain golf equipment.

 

The good news is that Americans are exercising more and perhaps realizing that playing golf is not as difficult as they thought. If this develops into an entirely new generation of golf enthusiasts, so much the better.   

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Winter approaches and with it a potential natural gas crisis. Areas of Europe are already scrambling to find the energy required to heat homes and continue their economic rebound. Could the U.S. be next?

 

Over the last year, prices for European natural gas have jumped by almost 500 percent. Natural gas prices on this side of the pond have also spiked by more than 100 percent this year. But it isn't just countries in the Northern Hemisphere that are feeling the scarcity. Parts of Asia, which are importing liquified natural gas (LNG) at record prices, are being forced to switch to coal and heating oil as LNG shipments decline. Japan and Korea are somewhat protected so far, thanks to their use of long-term LNG contracts, but not so with China.

 

China, the world's largest importer of natural gas, is having a power crisis as a result of the shortages. Many provinces are rationing electricity to industries. This is resulting in production cutbacks in cement, steel, glass, plastics, and a host of other products.

 

Brazil, and other areas in South America, depend on hydropower for much of their energy. However, serious drought has reduced the flows in various rivers such as the Parana Rover basin. The output of energy has declined to the point that utilities have been forced to make up the loss through natural gas imports.

 

The present shortages have multiple sources. Industrial production in this post-pandemic world has surged, which has expanded demand for natural gas and LNG. Climate change from a cold and flooding European spring to a grueling hot summer in Asia also boosted energy demand. Russia, the main gas supplier to most of Europe, has been piping less gas into European stockpiles. Whether by accident, or on purpose, is anyone's guess.

 

Alternative energy sources have also contributed to the present shortage. Politicians, ESP advocates, and the wind and solar sectors have argued that "going green" makes increased investment in natural gas production and exploration unnecessary. Only now, in this crisis environment, is the world realizing that transitioning to cleaner fuels will require a decades-long period. In the meantime, we will still need natural gas as an integral ingredient to the world's power supply, which fuels so much of our industrial and residential sectors.   

 

This winter, with huge demand from the world, importers are looking to Qatar, Trinidad, Tobago and especially the U.S. to increase supply. Unfortunately, the U.S. is experiencing its own shortfall in supply. Blame climate change once again for some of that. Summer heatwaves and back-to-back hurricanes have disrupted production and distribution, while increasing overall energy demand and consumption. Our own economic recovery has also diverted more consumption of natural gas away from residential use to industrial sources.

 

Then there is the reduction of U.S. gas production. "Fracking" has become a dirty word in many areas of the country. As a result, shale drillers are far more focused on achieving acceptable climate goals and increasing dividends and buybacks of their stock than in raising production. Energy analysts predict that there is little new gas coming online anytime soon — an increase of just 1.1 percent over the next six months. That is a big change from the recent past when our domestic surplus of gas was climbing steadily, and exports of U.S. LNG was the wave of the future. In the short-term, there is no real alternative to looming shortages.

 

Readers should brace for the highest energy prices they have seen in many years this winter. But if that is the only impact, we should consider ourselves lucky. The risk is that we follow Europe's and Asia's lead and experience widespread cutbacks in production. That would damage economic growth, while adding to the already rising rate of inflation. An environment that could cause stagflation. About the best we can hope for is a mild winter, but in this era of disastrous climate change, what are the chances of that?

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Changes in climate are impacting a global economy that is fighting to recover from a pandemic. Supply chain bottlenecks continue to worsen as continuous weather-related catastrophes close ports, and snarl land, sea, and air transportation routes. Can it get any worse?

 

Yes, and it probably will, according to climate experts. Nearly all actively publishing climate scientists agree that humans are causing global warming and climate change. The less than 2 percent of experts that disagree have published contrarian studies that either cannot be replicated or contain errors. I'll go with the consensus on this issue.

 

Here in the U.S., we receive ample proof of that change almost on a daily basis. I have lost count of the number of hurricanes hitting our shores so far this season. Rivers are drying up, some permanently, while heat domes and uncontrolled forest fires afflict the American West and Pacific Northwest. Similar occurrences are happening throughout the world from flooding in Germany typhoons in Asia and drought just about everywhere.

 

These weather-related events significantly increase the price of production, no matter the product, while reducing the speed with which supplies can be delivered. The quality of goods and services also suffers. Increasingly, the timing of deliveries is being thrown into disarray. Delays in components and parts that may make up a finished product further disrupts supply chains. If you add in shutdowns and labor shortages caused by the ongoing pandemic, you may now understand why some consumers are doing their holiday shopping in September rather than December. 

 

Swiss Re, a world-class insurance company, recently predicted in a research report that the effects of climate change could shave anywhere from 11 percent to 14 percent off global economic output by 2050. That comes to $23 trillion. Every year, however, billions of dollars in lost trade go unreported and uncounted.

 

Using the U.S. as a ready example, over the past four decades, we have suffered through 300 weather and climate-related disasters that cost the country more than $1 billion each in losses. In 2020, there were 22 such billion-dollar disasters. But none of those losses include the disruption in economic output and lost trade that accompanied the death and destruction.

 

Until recently, supply chain managements considered weather as a short-term risk where disruptions would be temporary at best.  Only now are companies realizing that they need a long-term understanding of weather and climate trends that encompass several years or more. How to mitigate this physical climate risk on supply chains is becoming, quite literally, a hot topic.

 

Most of the world's populations, for example, lives near seacoasts, where there is increasing risk that sea levels will rise, causing more storms, flooding, and hurricanes. Buying, or building a property (or contracting with a supplier) in a coastal area that lacks infrastructure protection in the event of coastal flooding may no longer be advantageous. Factors like this are now becoming more of a consideration among corporate planners. 

 

Climate-driven weather extremes are most evident and visible in the area of food production. Prices are skyrocketing and scarcities are becoming more frequent.

 

Problems in pork production in China, tomatoes in California, sugar and coffee in Brazil, and grains of all kinds in various locales are devastating certain producers while benefiting others. Human-driven climate change is hammering agricultural areas throughout the world.

 

I could also address the risk to the world of a diminishing water supply, but by now you are getting the idea that climate change is not only here to stay but its impact is increasing. It is going to make goods and services less plentiful and far more expensive in the years ahead. Corporations that plan today for the risks ahead should come out on top.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

For months, wealthy U.S. taxpayers and corporations have been living with the specter of higher taxes under the Biden administration. It is a pretty good bet that taxes will go up, but not as much as you might expect.

 

Throughout the week, Democrats in the House and the Senate have been horse-trading over the amount of spending versus the amount of taxes necessary to pay for President Biden's $2.3 trillion budget plan. Republicans are already on record that they will oppose any new tax hikes at all.

 

Since the Democrats hold such a slim majority in both the House and the Senate, any legislation will need to accommodate both moderates and progressives within the party in order to pass. The battle between the progressives and the moderates has already started.

 

It appears that Senate progressives, like Bernie Sanders and Elizabeth Warren, along with House liberals, such as Alexandria Ocasio-Cortez, will need to temper their expectations on how high the corporate tax rate (and other taxes) should be raised. Draft legislation, released this week, indicated that the corporate tax rate, which is at 21 percent, may rise to 26.5 percent (on anything over $5 million in income) and not the 29 percent that was first suggested in the president's initial proposals.

 

As for individual tax rates, there is some on-going discussion among moderates who might want to raise the top bracket for wealthy individuals and married couples by $50,000 or so.

 

The original idea was that those individuals earning over $400,000 per year (and married couples earning over $450,000) would be taxed at 39.6 percent, up from 37 percent starting in 2022.

 

However, the key battle will still-to- be waged is over changes to the capital gains tax.

 

Under current law, people who die with unrealized gains don't pay capital gains taxes. Their beneficiaries do pay, but only on gains dated after the prior owner's death, and only when they actually sell those assets. The Biden plan would treat a death in the same way the IRS treats a sale, that is, a capital gains tax would automatically be applied.

 

The initial proposal would also increase the capital gains tax from 23.8 percent to 43.4 percent. The House Ways and Means Committee has suggested limiting the capital gains tax to just 25 percent, which does not sit well with progressives.

 

Capital gains taxes are a sore point for many (but not all Democrats), who have complained for years that the present tax laws unfairly benefit the wealthiest Americans. Not so, say others. Moderates argue that there are plenty of small family businesses and farms that would be devastated by these changes.

 

The Biden proposal would offer a $1 million exemption to everyone and would allow farm and business owners to defer taxes as long as their businesses remain family-owned. A new

 

Senate Finance Committee proposal would ease the capital gains hit by raising the per-person exemption to $5 million, and up to $25 million for family farms.

 

Then there is a group of senators and congresspeople (regardless of whether they are progressives or moderates) from New Jersey, New York, and other high-tax states that are insisting that they won't back a budget deal without a relaxation of the limits on the state and local tax deduction, the so-called SALT tax passed in 2018 by Republicans. Progressives are just as insistent that the lion's share of these benefits would accrue to the rich and not the middle class. A compromise might be found in capping any SALT tax breaks to a specific middle-class income bracket.

 

As you can imagine, this debate is not over. I expect it will take at least two more months before a compromise will be hammered out between the opposing wings of the Democrat Party.

 

Investors can be almost certain that taxes will rise for some, but the sting will be lessened to some degree.

 

Fortunately, the chances of compromise are quite high, especially when one considers the stakes. The expansion of the U.S. social safety net, the critical need for a new climate policy, and the fact that mid-term elections are not that far away, indicate a deal will get done.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

 

It has been 30 years since the Nikkei 225 last touched the 30,000 level. However, many investors look beyond this island nation and focus instead on its Chinese neighbor. That may prove to be a mistake.

 

To some investors, it is the epitome of value investing. Warren Buffet's Berkshire Hathaway made some sizable bets on several Japanese trading companies last year. Japan's stock market is cheap compared to many other markets. But deservedly so, say the bears, since investors have had to put up with years of sluggish growth and perennial deflation.

 

Japan is home to many well-known companies, (think Sony and Toyota) that have balance sheets flush with cash. More than half of Japanese companies have net cash positions on their books, compared to just 10-20 percent of most companies in the Western developed world.

 

Over the past few years, an increasing number of activist's equity funds and private equity firms have lobbied these cash-rich firms to begin to share the wealth with shareholders. Japanese corporations are listening. As a result, dividend income is increasing. The dividend yield now tops that of the U.S. stock market. The average Japanese company is still paying out only a third of profits as dividends. there is a lot of room for growth in the years ahead.

 

Those trends tend to fall on deaf ears, however. That is understandable given the nation's aging population, insular business culture, and overwhelming national debt.

 

Japan is the developed world's most indebted nation with a debt to GDP ratio this year of 256.49 percent. It has been so for decades. What most investors fail to understand is that Japan, unlike many other nations, has little to no risk of ever going bankrupt. That is because it also happens to be the greatest creditor ration in the world. The Japanese are among the world's best savers. Their savings rate is about 20 percent, compared to just 5 percent in the U.S.

 

The fact is that its debt is entirely denominated in Japan's own currency, the yen. And about half that debt is owned by the Japanese Central Bank. In other words, the government is lending money to itself. It has no fear of default as a result. Of course, by creating too much money, the nation runs the risk of generating inflation. That would be ideal in the case of Japan. since inflation is currently stuck around zero. For years, Japan has been battling deflation, noy inflation.

 

Like all nations, the Japanese have been wrestling with the COVID-19 pandemic with varying success. After postponing the 2020 Tokyo Olympics, Prime Minister Yoshihide Suga, of the Liberal Democratic Party (LDP), despite opinion polls to the contrary, decided to risk holding the games in July 2021. At the same time, the Delta variant pushed COVID cases to a record high. On the economic front, massive fiscal and monetary spending has had only a modest impact on growth. Japan's economy is expected to grow by 2.8 percent in 2021. Public support for the ruling, market-friendly, Liberal Democratic Party has been waning as a result.

 

 In response, Prime Minster Suga abruptly announced last week that he would not be seeking reelection after only a one-year tenure. His resignation likely improves the chances that the next leader will come from the LDP, which removes a major concern for equity investors. The clear winner of Suga's announcement has been the Japanese stock market. It has risen by more than 4 percent since the announcement.

 

There is a short list of prospective candidates from the LDP, but investors are expecting that whoever wins, improving the rate of vaccinations, and additional fiscal spending program of "tens of trillions of yen" will be in the cards. If so, investors should keep their eyes peeled for any downside in the Japanese stock market in September 2021and October 2021. It would be an ideal time to commit some capital to Japan.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.